What Buyers Really Need to Know About the April 2022 Bank of Canada Policy Rate Hike
In last month’s Penticton mortgage rates update we detailed the recent (at the time) Bank of Canada announcement regarding the Policy rate. In March they increased the rate from .25% to .5%. We predicted that the Bank would once again raise the cost of borrowing incrementally through the months ahead, with another projected this very month (April). This morning (April 13) they did just that, with a move that the Financial Post and others are calling a super-sized rate hike. Is mainstream media being dramatic? More importantly, should new buyers reconsider getting a mortgage through the remainder of the spring and summer of 2022? Let’s review.
Yes, It Was the Biggest Rate Hike in Over Two Decades
On April 13 2022 the Bank of Canada announced a 50 basis-point hike. In doing so they increased the Policy rate from .5% to 1-percent. This is the biggest jump in the Policy rate in over 20 years. In that sense, the media is correct in stating that this was a super-sized event. But what does that really mean for new buyers?
If It Wasn’t for Pandemic-Driven Historically Low Rates We’d be Celebrating 1-Percent
Excuse the longwinded heading above, but it’s necessary. We want to draw new buyer attention to one simple fact – a 1-percent Policy rate is not something to be scared of. Quite the contrary.
You can review the historical accounting of the Bank of Canada Policy rate by using this tool. What you’ll find, is that In April of 2018 the rate was 1.25%. In April of 2019 the rate was as high as 1.75%.. In fact, it persisted at 1.75% through until March of 2020. Of course, it began to fall when the economy shut down and the Bank of Canada took measures to stimulate spending, but therein lies the point. The government response to the pandemic drove the Policy rate into “unnatural” territory, which directly drove variable mortgage rates (tethered to the Policy rate) to historic lows. If it wasn’t for the government response to the pandemic new buyers would find news of a 1-percent Policy rate (and subsequent variable mortgage rate levels) quite appealing. We encourage buyers to forget about what the government response to the pandemic has done, and take the cost of borrowing today at face value.
Today, banks like BMO and RBC are advertising variable mortgage rates of 2.15% and 2.28% respectively. As such, Penticton mortgage rate updates remain favorable – even more so if you work with Carloni Mortgage Brokers. We will get you access to even better rates and/or terms to reduce the overall cost of buying a home in the BC Southern Interior.
Fixed Rates Expected to Rise Too
The Bank of Canada is also ending reinvestment and will begin quantitative tightening this month (April 25). This (all else equal) has the impact of increasing fixed mortgage rates. At press, banks such as CIBC and TD are marketing 5-year fixed rates (closed) at 3.82% and 3.99% respectively. Now let’s have a look at the historical chart of the 5-year fixed rate:
As you can see, unless you have a time-machine to take you back to 1970 (and accept that you’ll have to wear bellbottoms) there still hasn’t been a better time to lock into a fixed mortgage rate (historically low pandemic levels aside).
Quick Response Required
What should your response be to the Bank of Canada announcement? If you want to take advantage of mortgage rates as they are, instead of waiting and paying more later, your response should be a quick one. Get access to lower (than advertised) Penticton mortgage rates and first-time buyer incentive programs by contacting Carloni Mortgage Brokers.
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